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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Mind Technology, Inc. (NASDAQ:MIND).
Is Mind Technology (NASDAQ:MIND) a good stock to buy now? MIND shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of September. Our calculations also showed that MIND isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare MIND to other stocks including Brickell Biotech, Inc. (NASDAQ:BBI), Flexible Solutions International, Inc. (NYSE:FSI), and Yield10 Bioscience, Inc. (NASDAQ:YTEN) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
John Rogers of Ariel Investments
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let's take a look at the key hedge fund action regarding Mind Technology, Inc. (NASDAQ:MIND).
How have hedgies been trading Mind Technology, Inc. (NASDAQ:MIND)?
At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MIND over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Ariel Investments held the most valuable stake in Mind Technology, Inc. (NASDAQ:MIND), which was worth $5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $1.1 million worth of shares. Manatuck Hill Partners was also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Manatuck Hill Partners allocated the biggest weight to Mind Technology, Inc. (NASDAQ:MIND), around 0.21% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to MIND.
Due to the fact that Mind Technology, Inc. (NASDAQ:MIND) has witnessed a decline in interest from the smart money, we can see that there was a specific group of hedgies who sold off their positions entirely heading into Q4. Interestingly, John W. Rogers's Ariel Investments dumped the biggest position of the "upper crust" of funds tracked by Insider Monkey, comprising close to $3.9 million in stock, and Renaissance Technologies was right behind this move, as the fund said goodbye to about $0.7 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to Mind Technology, Inc. (NASDAQ:MIND). We will take a look at Brickell Biotech, Inc. (NASDAQ:BBI), Flexible Solutions International, Inc. (NYSE:FSI), Yield10 Bioscience, Inc. (NASDAQ:YTEN), Celsion Corporation (NASDAQ:CLSN), Kewaunee Scientific Corporation (NASDAQ:KEQU), Acorda Therapeutics Inc (NASDAQ:ACOR), and Aptevo Therapeutics Inc. (NASDAQ:APVO). This group of stocks' market caps are closest to MIND's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBI,3,1222,0 FSI,2,998,1 YTEN,2,582,1 CLSN,3,518,-1 KEQU,3,1937,0 ACOR,7,3257,-6 APVO,2,2315,-2 Average,3.1,1547,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.1 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $7 million in MIND's case. Acorda Therapeutics Inc (NASDAQ:ACOR) is the most popular stock in this table. On the other hand Flexible Solutions International, Inc. (NYSE:FSI) is the least popular one with only 2 bullish hedge fund positions. Mind Technology, Inc. (NASDAQ:MIND) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MIND is 33. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and surpassed the market again by 15.4 percentage points. Unfortunately MIND wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MIND investors were disappointed as the stock returned -2.4% since the end of September (through 11/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.